This paper is about the price effects caused by a VAT (value-added tax) reduction
for menstrual hygiene products in Germany. Several aspects make this VAT
reduction particularly interesting: The exogeneity of the reduction under otherwise
constant economic conditions, the reduction was substantial and permanent,
demand for the products is inelastic and in many cases, pass-through rates are
more than 100 percent. We find that the VAT reduction is completely passed
through to consumers. Despite this complete pass-through, we still detect a
significant effect of retailer competition: When more retailers offer a product, the
price reduction is larger.
Entry Barriers and Transparency in Markets for Experience Goods: Experimental Evidencejoint with Alexander Rasch and Nicolas Fugger(available upon request)
In markets with experience goods, entry regulation in the form of occupational licensing is widespread.
To answer the question whether consumers benefit from such regulation as intended,
we run a market experiment with buyers who are heterogeneous with respect to their taste for quality.
Two sellers first sequentially choose whether to invest, where investments either improve a seller's ability
to provide better quality or make quality observable. Then, sellers choose qualities and finally set prices.
We compare treatments in which the two firms can always offer a product to treatments in which
an investment is a prerequisite to enter the market. Our results show that the effect of the regulatory
entry barrier depends on the effect of the investment. Firms invest significantly more when the investment
in qualification is required by regulation. However, we observe significantly higher qualities only when
the investment in qualification leads to the observability of the quality.
This is in line with theoretical predictions. In that case, consumer surplus also rises.